The US could block Russian debt payments starting next week 1:06
New York/London (CNN Business) --
Russia defaulted on its foreign debt for the first time since the Bolshevik revolution more than a century ago.
Following reports that Moscow had failed to pay some $100 million in interest on two bonds during a 30-day grace period that expired on Sunday, the White House said the default showed the power of Western sanctions imposed on Russia since who invaded Ukraine.
"This morning's news of Russia's failure to pay for the first time in over a century underscores how strong the reactions that the United States, along with its allies and partners, have taken, as well as how dramatic that has been the impact on Russia's economy," a senior administration official said on the sidelines of a G7 summit in Germany.
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Russia denied being in arrears, saying the payments had been made, in dollars and euros, on May 27 and that the money was stuck at Euroclear, a Belgium-based clearinghouse.
The historic default had been widely anticipated after half of Russia's foreign exchange reserves were frozen and the US Treasury ended a sanctions exemption that had allowed US bondholders. USA receive payment from Russia.
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The European Union also made it harder for Moscow to meet its debt obligations earlier this month by sanctioning Russia's National Settlement Depository, the country's agent for its foreign-currency bonds.
Still, it took longer than many expected: The sanctions have largely failed to cripple the Russian economy, as rising energy prices have filled the country's coffers.
Meanwhile, the Russian currency has soared to a seven-year high against the US dollar.
Russian gas cuts affect the European Union 0:52
The country managed to pay its creditors with dollars in April, after a long saga that put it on the verge of default.
The country's finance ministry said in April that it had cashed $565 million in eurobonds due this year, as well as $84 million in eurobonds due in 2024. Both payments were made in dollars, according to the finance ministry, as and as required by the provisions of the bond contract.
But this time it has not been possible, given recent moves by US and EU authorities.
The state-run Ria Novosti news agency quoted Russian Finance Minister Siluanov as saying last week that the sanctions meant Moscow was left with "no other method of getting funds to investors except making payments in Russian rubles."
The Russian Finance Ministry said in a Telegram post on May 27 that the Russian National Settlement Deposit had made the required payments of $71 million and €26.5 million.
"The accusations of non-payment are incorrect because the necessary foreign exchange payment was made already in May," Kremlin spokesman Dmitry Peskov said during a regular call with reporters on Monday.
The fact that the money transferred to Euroclear was not released to investors "is not our problem," he said.
"So there's no reason to call it default," he said.
Euroclear cannot settle any securities with counterparties that are subject to sanctions.
Russia defaulted on its foreign debt, according to S&P
Since 2014, the last time the West sanctioned Russia over its annexation of Crimea, the Kremlin had amassed some $640 billion in foreign reserves.
About half of those funds are now frozen under Western sanctions imposed after the invasion of Ukraine.
It's unclear what effect — if any — the default will have on the Russian economy in the short term, as the country can no longer borrow abroad and the value of its existing bonds has plummeted to pennies on the dollar.
But in the long run, the Russians will almost certainly suffer.
The assault on Ukraine has left the country with few friends in the international community, and the default is likely to cut off access to foreign financing for years.
CNN's Clare Sebastian and Phil Mattingly contributed to this report.
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